Subject: Introduction to Income Tax Law
2500 words equivalent
Question 1 ( 10 Marks)
Recently Australia has been ravaged by bushfires which have been attributed to the adverse effects of human-induced climate change. You have been approached as a tax expert to offer some advice as to how the Australian tax system can be utilized to address the effects of climate change.
In 350 words ( approximately) provide and discuss two tax-based suggestions which you believe could be incorporated into the tax system to encourage activities designed to reduce the effects of climate change.
You also need to provide a brief explanation of why you believe your suggestions will be effective. In your answer, you need to discuss the effectiveness of taxation as a tool for social change.
Possible resources – starting point only
- Investigate the existing primary producer tax concessions in the Australian taxation system.
Question 2 ( 10 marks)
- Explain the Constitutional powers authorizing the collection of tax in Australia.
- Discuss how the concept of separation of powers facilitates the effective operation of the Australian Taxation System.
Possible resource – starting point only
Question 3 (10 marks)
- Identify and briefly describe the principles set out in the Code of Professional Conduct for tax agent professional and their ethical standards.
- Referring to the Explanatory Paper TPB 01/2010 Code of Professional Conduct, what mechanisms can be put in place to manage a conflict of interest?
Possible resources – starting point only
Question 4 (30 marks)
With reference to relevant legislation and/or case law, for Nisha, Jo and Miguel determine their:
- assessable income,
- allowable deductions
- taxable income
- tax assessed and
- balance of the assessment, including Medicare Levy.
Show all workings and your legal analysis determining which amounts are assessable and which expenses are deductible. All taxpayers have adequate private health insurance. All are residents of Australia for tax purposes.
|Item||Nisha (Plumber)||Jo (Computer programmer)||Miguel (Chef)|
|Salary||$ 34 000||$ 72 000||$ 61 000|
|Purchase of cooking knives||$ 650|
|Purchase of plumbing tools||$ 400||$ 800|
|Everyday clothes for office wear||$ 1 200|
|Trade journals specific to occupations||$ 180||$ 190||$ 220|
|Purchase of books on computer programming||$ 500||$ 260|
|Lottery winnings||$ 40 500||$ 280||$ 30 300|
|Registered tax agent’s fee for preparation of tax return||$ 200||$ 500||$ 300|
|Inheritance from grandmother||$ 45 000|
|Costs of course in plumbing||$ 620||$620|
|Uniforms for work||$ 800|
|Donations to charity||$ 50||$ 130||$ 80|
|Protective clothing||$ 630|
|University fees – Computer course||$ 800||$ 800|
|Interest on bank account||$ 25||$ 330||$ 44|
|Rent from an investment property||$ 27 500|
|Car expenses to travel to work||$ 600||$ 500||$ 400|
|Investment property expenses||$ 18 000|
|Rent paid on home apartment||$ 5 200||$ 6 240||$ 6 760|
|Holiday costs||$ 2 000||$ 2 200||$ 2 800|
|PAYG credits||$3 600||$ 21 600||$18 700|
Question 5 ( 15 marks)
Lisa and Monica are Australian residents for tax purposes and operate a hairdressing salon as partners where they each are entitled to 50% of the profits after allowing for partner’s salaries, interest on capital, interest on advances and interest on drawings.
For the current income year, the partnership derives $102 000 of sales and $9 272 in GST and incurred $44 000 of expenses. The expenses included the purchase of a new hair curling megadevice which has an effective life of 7 years. However, it has not been unpacked and is not currently operational. The megadevice cost $7000. The partnership always uses the Dimishing Value method to calculate Decline in Value deductions.
Lisa and Monica paid themselves a salary of $23 000 and $18 500 respectively. In addition Lisa received $3 000 interest on capital and paid $750 interest on her drawings.
During the income year the partnership sold some unfranked shares for $15 000. The shares had been bought in 2010 for $3000 and were held 75% by Lisa and 25% Monica
Monica was paid $3 500 interest on funds she advanced to the partnership. Monica also has a capital loss of $5000, $2000 of this is from the disposal of a collectible in a previous year.
With reference to relevant legislation and/or case law:
- Calculate the s90 Partnership Net Income (PNI) and complete a partnership schedule showing the overall distribution to each of the partners.
- Calculate the taxable income and the tax assessed on taxable income for Monica
Question 6 (25 marks)
Della Bella Pty Ltd is a private company incorporated in Australia in 2009 under the Corporations Act 2001 in order to operate a Bungee jumping business.
The company has had the following results in the last three years:
Income year Tax result
2015/16 $370 000 loss
2016/17 $500 000 loss
2017/18 $35 000 loss
Della Bella Pty Ltd has prepared the following income statement for 2018/19:
|Gross profit from trading||510,000|
|Fully franked dividends||16,800|
|Fines and penalties||3,000|
|Increase in provision for annual leave||14,700|
|PAYG Instalments paid||130,000|
|Total expenses||281, 700|
|Net Profit||256, 100|
Note 1 – The decline in value for 2017/18 was $38,900.
Note 2 – Annual leave paid amounted to $12,000.
Note 3 – The $256, 100 profit does not include any tax losses from previous years.
On 1 September 2016 65% of the shares with voting, income, and capital distribution rights changed ownership. On the 17 June 2017, the company started to operate a Berry Bomb ice cream outlet.
Della Bella Pty Ltd has collected GST of $25 909 and received a yearly subsidy since 2009 from the Government of $20 000. The subsidy is classified as exempt income.
With reference to the relevant legislation and/or case law:
- Explain the conditions that must be met to establish if a company is a resident of Australia for tax purposes and determine whether the company is a resident of Australia for taxation purposes
- Calculate DellaBella’s taxable income
- Calculate the tax assessed and the balance of Della Bella 2018/19 tax assessment
- Discuss how a company’s residency status impacts the taxation of a company in Australia. ( Disregard Double Tax Agreements for the purpose of this question)
Resource – starting point only
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